Management Accounting Analysis and Improvement

The assignment focuses on analyzing the financial performance of a hypothetical organization that experienced a loss in the previous year. It emphasizes the importance of improving financial performance through management accounting practices and highlights key areas like the balanced scorecard. The analysis draws upon relevant academic literature and provides insights into strategies for enhancing the organization's overall performance.

MANAGEMEN
T
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A- Report defining functions of management accounting....................................................1
B- Define types of Management Accounting Systems...........................................................3
TASK 2............................................................................................................................................5
A- Income statement for marginal costing and absorption costing........................................5
TASK 3............................................................................................................................................7
A- Types of budgets with the advantages and disadvantages...............................................7
B- Process of Budget preparation...........................................................................................9
C- Pricing Strategies.............................................................................................................10
TASK 4..........................................................................................................................................11
A. I. Balanced Score Card and explain its implementation..................................................11
A.ll. Role of Balanced scorecard in addressing the financial problems and enhancing the
financial governance.............................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

Illustration Index
Illustration 1: The budget process....................................................................................................8
Illustration 2: Balanced Score Card...............................................................................................10
Index of Tables
Table 1: Income statement of absorption costing............................................................................5
Table 2: Income statement of Marginal costing..............................................................................5

INTRODUCTION
The management accounting aims at providing information to the managers to enable
them to take meaningful decisions for the company. The present report focuses on various
systems that applies to Imda Tech Limited which is engaged in the production of the Special
charger for the mobile telephone and other carry on gadgets and supplying the same to retail
outlets in UK and also uses various other systems which are cost accounting systems, inventory
management systems etc. however this also focus on the various types of budgets and its
preparation and also the balanced Score Card approach to address the problems in the
organization.
TASK 1
A- Report defining functions of management accounting.
Report
The management accounting is the founding tool for any business. It is aimed at gathering the
information which will ultimately be helpful for the decision making. Imda tech being engaged in
producing special charger for the telephone and also carry-on gadgets for many retail outlets in UK and this
aims at creating strategies making policies for running the business effectively.
It is very different from Financial Accounting as this focuses on the preparation of financial
statements in order to provide the material information which will be required for the external uses to make
their decisions, the transactions are of monetary nature and for this the reporting done to the internal as well
as to the external user so as to enable them to take decisions... (Cooper, 2016). In management accounting
as the reporting is done only to the internal management
has many functions to perform which are as follows: Forecasting- For determining the long and short duration goals for decision making, intern aids in
providing with information it which will ultimately be required for decision making. Coordination- The main aim for any organization is to earn profits as well as increasing the
efficiency. To coordinate among various departments, best measures are to use the budgets, costing
etc.
 Communication-Final results which are generated needs to be communicated to the management a
with the help of reports and thus enabling to take appropriate decisions
As this is a great tool for decision making as there are many decisions in the organization to be
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taken from minute to strategic decisions (Quattrone, 2016). As sales affects the profits, so the concentration
is shifted towards the same. For getting the best results, marketing efforts are to be enhanced .. The task
begins with identifying the products to sell and later on focusing on the customers to whom it is sold.
Moreover, it helps in targeting the efforts accordingly it.
Difference between financial and management accounting
Basis of difference Financial accounting Management accounting
Meaning It is the process wherein
accountant prepares annual
accounts to maintain record of
their monetary business
transactions and activities.
It is the process in which managers
analyze the entity’s performance to
make strategies, plans and decisions
to make viable decisions for
accomplishing business targets.
Purpose Its primary aim is to report the
financial position and
profitability performance.
It aims at examining Imda Tech’s
performance for the strategic
formulation and prudent decision-
making.
Regulation UK GAAP, International
Accounting Standard and
International Financial Reporting
Standard (IFRS)
No legislative framework applied
for the management accounting.
Audience Regulators, competitors, Tax
authorities, managers,
employees, investors, debtors
and others
Business managers and
policymakers
Auditing It is necessary for the companies
to audit annual accounts to prove
their truth and fairness.
It is not require auditing managerial
reports and cost sheet prepared by
Imda Tech’s managers.
Time duration Annual accounts are prepared There is no fixed time to prepare
managerial reports. It is just
prepared as per the business
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requirement.
Management accountant Trainee
B- Define types of Management Accounting Systems.
Report
Imda Tech Limited. This accounting is very important for the organization. It helps in gathering
the relevant information. This is done to make the work speedy and helpful in decision making.
There are various systems for management accounting which helps in making the decisions
faster and accurate.
These can be classifying into the following-
 Cost Accounting Systems- this aims at identifying and estimating the costs for the
product which will ultimately results in the higher profitability of the company
including. Various costs such material costs, labor and overhead costs
(Maynard, 2017). This involves various types of costing such as Normal costing,
this involves the use of the actual figures or prices for determining the cost of the
product. The components of normal costs are Actual cost of materials, actual cost
of the labor and the standards overhead rate. These are calculated to design the
cost of the product.
 Standard costing, is a tool for preparation of the budgets which is used to check
the deviations from the actual cost (Wang, 2016). For estimating anything a
estimate or standard is set looking at the previous operations and then the actual
expenses are incurred. The main aim of this is to compare the standards cost with
the actual cost to check the deviations and correcting the same. Actual Costing,
here the accounting is done based on the actual cost of production.
 Inventory Management Systems- Every organization has the unsold stock which
is waiting to be sold thus to manage the same is important task to perform. To
avoid the wastage of inventory by physically verifying the stock to control the
inventory by regular updating. Another method can be managing the orders and c
by maintaining cordial relations with the suppliers etc.
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 Job Costing Systems- When the customers have specified needs for different
products. For that, it needs an entire system is establish which the cost is
determined separately for each system. As the production line for each product is
different hence costs are determined for each products separately.
 Price optimizing systems – In an organization there are various costs for different
products and observing the behaviors of the people which change in the prices.
This change in the prices creates the change in demand as well. So, this system
helps in identifying the different prices for different segments of consumers and
hence achieving profits.
Imda Tech uses the above systems in order to generate profits. It used the cost accounting
systems to analyze the various costs on the charger. It used job costing systems as per the needs
of the customers for their mobile phones and developing as per the different needs of the
customers. It uses the inventory management systems to control and manage the inventory to
avoid the wastage. Imda Tech has developed different prices for its different types of retailers.
As for the different accounting systems the costs are recorded in an entirely different way
hence integration is required between the reporting and the accounts. Based on the chosen system
the reporting systems is followed accordingly. Not all the systems can be followed by the single
organization so as per the needs the reporting method changes.
Management accountant Trainee
TASK 2
A- Income statement for marginal costing and absorption costing.
Table 1: Income statement of absorption costing
Particulars Cost Total (£)
Sales (sales price*number of units) 35*1500 52500
Less: variable cost
Direct Material 8 2000 16000
Direct Labor 5 2000 10000
Variable Production Overhead 2 2000 4000
Selling, distribution and admin expenses 7875
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Total Variable cost 37875
Contribution 14625
Less: Fixed cost
Production overhead 5 2000 10000
Fixed selling expenses 10000
Total fixed cost 20000
Net Profit (Contribution-Fixed cost) -5375
Interpretation: While calculating the profit as per the absorption costing, all the fixed as well as
variable overheads are considered in the calculation of the profit. In this case the resultant figure
came out to be a loss of GBP 5375. In this all the cost is the product cost Ans the same is
allocated to the product.
Table 2: Income statement of Marginal costing
Particulars Cost Total (£)
Sales (sales price*number of units) 35*1500 52500
Less: variable cost
Direct Material cost 8 2000 16000
Direct Labor cost 5 2000 10000
Variable Production Overhead 2 2000 4000
Selling, distribution and admin expenses 7875
Total Variable cost 37875
Contribution 14625
Less: Fixed cost
Production overhead 0
Administration Cost 10000
Total fixed cost 10000
Net Profit (Contribution-Fixed cost) 4625
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Interpretation: In the marginal costing, the profit calculated is based on just the variable
overheads and the fixed overheads are not considered. Hence, there is a profit of GBP 4625 as in
this only the variable overhead is the product cost and the fixed overheads are the period cost
which is not included in the calculation.
TASK 3
A- Types of budgets with the advantages and disadvantages.
Report
Imda Tech Limited
For the Imda Tech Limited setting budgets are very important for the organization.
There is no particular type of budget which suits all the organizations. Hence, there are different
types of budgets as per the needs of different people classified as-
1. Master Budget- It is the summation of the entire individual budget to represent the
entire picture of the organization. Whenever one has to gauge the performance then it
can directly refer to the master budget and one does not have to refer to the individual
budgets (Maynard2017).
Advantages: -
 It helps in predicting the future. It summarizes the content of all the other budgets It provides a clear picture of the possible results of future business activities and
functions. It is useful for the Imda tech to prepare solid plans for the future years to achieve their
aims and objectives.
Disadvantages: -
 It becomes difficult to interpret the budget because many categories of expenditures and
incomes are included in it.
 It comprises the results of all the future business activities, thus, it lacks simplicity.
2. Cash Budgets- It involves all the cash inflows and outflows from the organization. And thus,
helps in identifying the overall usage of cash within the organization and the available cash as
well.
Advantages: -
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 Helpful in the cost minimization which lead to the maximization of the profits.
 It helps to determine the cash availability for the future because cash incomes are being
subtracted with the sum of expenditures to assess that whether entity will have enough
resources or not to meet their business need.
 It enables management to consider the future and control the use of cash through better
coordination.
Disadvantages: -
 It does not provide helps to determine net profitability for the upcoming period because
cash surplus or deficit is different from the profit.
 Reliance on estimates is also a disadvantage of it because in the uncertain environment,
projects may really vary from the actual outcomes and affects the results.
Production budget:
As name implies, the budget provides an estimation regarding the probable manufacturing
activities of the business for future period.
Benefits:
 It helps to effectively utilize the business assets such as plant and machinery and labor
hours for production of required quantity of goods at minimal cost.
 It assists Imda Tech’s managers to minimize their production expenditures through
regular supervision.
Disadvantages:
 Being a manufacturing organization, Imda Tech’s managerial team have to conduct a
thoroughly and deeply market research for assessing the future production requirement
to address consumer need which leads to incur high cost of marketing.
 In case of sudden rise in demand, companies may face issues to meet the exceeded
market demand as it will be difficult to enhance the production volume immediately.
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B- Process of Budget preparation.
Illustration 1: The budget process
Source: Saylord.com
The process of budget preparation completes in five stages.
1. For the preparation of the budgets the first step goes with the collection of data which is
relevant. For the budgets to be appropriate the data which is gathered is appropriate
(Cooper, 2016). If the data is not relevant and I not appropriate and just based on the
estimates it will not generate the desired results and the overall calculation may go
wrong. He past performance of the organization has to be seen and on that basis the
estimation for the budgets can be seen. This involves the proper planning done at the part
of the management and then only then the process can be initiated. Here the draft of type
budget is prepared.
2. After the preparation of the draft budget the same is taken to the management for the
approval. When the changes mentioned are been made in the draft budget the same
becomes the final budget and this is used for the measuring the performance of the
organization.
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3. After the budget is put into action and the tasks has been performed for the period for
which the budget is prepared and then the performance is measured and the actual results
is compared with the standard budget and then the evaluation is done and if there are
deviations then appropriate measures are taken to control the movement.
4. After this the budget is analyzed, if there are deviations then the budget is adjusted as per
the needs and requirements(Quattrone, 2016). This process ends with the revision of the
budget if it does not meet the requirements as specified before.
C- Pricing Strategies.
There are various pricing strategies which the company can use are as follows-1. Price Skimming- When a new product of a well-established brand is introduced this is
done to generate high profits as keeping the prices high. It is useful to target the
customers who apply for the product and not waiting for reducing the price to attract the
customers. While recovering the costs at the initial stages it and one does not have to wait
for the establishment of the product (Gong, 2016). It is opposite to the penetration pricing
as in that initially the price is kept lower to attract as many customers as possible.2. Cost plus pricing- Setting up the price keeping the cost incurred as well as including the
profit margin in that. For example if the costs for the company are GBP 200 and the
profit margin is kept as 15% then accordingly the cost would be GBP 230 (GBP 200 +
15% profit). As here the entire concept is very different here the aim is not setting the
high price or low price. Here correct price is very important which aims at earning the
profit margin
3. Bundle Pricing- In this type of pricing strategy as the name suggests the sales id not done
of the single product, here the products are sold according to the bundle means selling a
combination of the products for a lower price. If the products are bought individually
then the prices for the product will be high. Imda Tech limited incorporates this strategy
as it can sell the charger with set at a lower price to attract more and more customers. The
effect of this is that more customers will be satisfied as they will get many products at a
relatively less cost as compare to the individual purchase.
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TASK 4
A. I. Balanced Score Card and explain its implementation.
Imda Tech Limited uses balanced score card as the performance evaluation tool which is
done to manage the activities which helps in evaluating the results based on prioritization the
projects according to the relevance and comparison is done on the basis of 4 different factors and
key performance indicators(KPI) are developed which included the Financial perspective includes the growth, revenue, usage etc on this basis the
performance is evaluated to identify whether company is contributing to the sustainable
development or not. Internal Process Perspective-Involves satisfying our customers, stakeholders with
respect to meeting the quality standards, fulfilling the orders in time, reducing the cycle
time etc. Learning /Growth perspective- factors involve the satisfaction of the employees in the
organization, performance evaluation of the employees which helps in getting the facts of
the employees in the organization.
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Illustration 2: Balanced Score Card
Source: Business Insider

 Customer Perspective- This Begins with determining the needs of the customers and on
that basis the requirements are met by developing the product (Höglund, 2014). This
involves the retention of the customers, profitability etc.
Implementation of balanced scorecard- . The first thing to be done understands the terms and
next step is to identify the objectives which are to meet. For meeting the said objectives various
meeting has to be planned and discussions should be done about the strategy. After the
discussion, the Key Performance Indicators has to be identified so that the major stress can be
laid upon them. Finally, the test of balanced scorecard is to be made.
A.ll. Role of Balanced scorecard in addressing the financial problems and enhancing the
financial governance.
As Imda Limited is involved in making the chargers for telephone and other gadgets. The
previous financial year depicted a loss of £1.5 Million. The factor which is reflected here is the
financial factor. So as to improve the performance of the company and taking measure to control
the loss and convert the same into profits. One has to take measures to control the same. So, for
correcting the same preparation of budgets to be done and the management should stick to the
budget and then only the deviations to be corrected.
The balanced scorecard analyzed the performance of the company on the basis of various
factors and thus the work becomes easier. By developing various strategies as, one can find the
factors which needs more stress and the entire focus is shifted to that. It helps in identifying the
factors its strengths and weakness and thus aiming at the factors which results in the best results
and the one which gives negative results measures to be taken to improve the same. Studying and
analyzing all the factors result in good financial governance by optimum utilization of the
resources.
BSC is a great tool that helps the firm to handle their financial issues & improve
governing framework. Measuring performance using financial perspective of BSC helps to
determine performance. For instance, profit percentage, expenditure % of sales, cost analysis etc.
facilitates Imda Tech’s executives to examine their financial performance. Through the analysis
of it and comparison over different years provides a clear insight to the managers of their cost
data. Moreover, they can also compare targeted expenditure with the actual business spending &
create policies and plans which are cost rationalized. In this, strict and tight monitoring by the
departmental heads helps to minimize incremental cost results through proper use of funds and
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capital. Moreover, investing funds in profitable purpose at good return drive into the benefits of
good yield and enable firm to enjoy success. Monitoring also assists in reducing the cost of
manufacturing i.e. labor, material and other and benefited the Imda Tech with economies of
scale. As a result, they can earn good return on each unit and strengthen competitive position.
CONCLUSION
In the above report, it is concluded that the pricing strategies of Imda Tech Limited
should focus mainly on the Bundle pricing strategy as this is better for the company as they can
combine the chargers and the telephone and thus satisfying the customers. The major factor on
which the company should stress upon as per the Balanced score card is the financial perspective
as in the last financial year it showed a loss of £1.5 Million so in order to improve the condition
of the organization financial performance has to be improved as this impacts the overall
performance of the company.
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